Greece to lay off old people, hire 'young, capable' replacements

Antonis Samaras - Greek Prime Minister

Greece's prime minister Antonis Samaras has confirmed that the latest
deal with the "troika" of organizations bailing out Greece -- the
European Commission (EC), the European Central Bank (ECB) and the
International Monetary Fund (IMF) -- calls for 15,000 layoffs of civil
service employees. There will be 4,000 layoffs in 2013, and 11,000
more layoffs in 2014, violating the provision in Greece's 1911
constitution that civil servants have lifelong job security.

Ordinarily this news story wouldn't be that big a deal -- just
describing one more Greek commitment that probably won't be met. But
here are the two paragraphs in the news story that made my eyes bulge:

"The premier also confirmed that a total of 15,000
civil servants would be dismissed before the end of 2014, with
4,000 to go this year, but he stressed that each departure would
be replaced by a new recruit. 'The same number of new people will
be recruited in their place,' he said.

Poul Thomsen, the head of the International Monetary Fundís
mission to Greece, struck a similar note at a conference in Athens
organized by The Economist, saying that public sector staff 'will
not be eliminated but replaced by young, capable people.' He did
not confirm explicitly that the one-hiring-to-one-firing ratio
would apply."

Huh? Are we really being that explicit about tossing out the older
generation to make way for the "younger, more capable" generations? I
guess we are. Kathimerini

And so, if you're in the 99%, then you can't borrow any money at all,
certainly not for anything so mundane as paying salaries or buying
equipment to build a business. That's why all these trillions of
dollars pouring out of the Fed and other central banks don't cause
hyperinflation.

But if you're in the 1%, then you can borrow millions of dollars from
Interactive Brokers at 1.3% and use the money to buy stocks (and,
presumably, gold) at only 20% margin. The stocks are supposed to
yield over 5%. Sounds like a good deal.

From 1926 to 1929, the amount of margin credit grew from $2.5 billion
to almost $10 billion. After the 1929 crash, the amount of
margin debt fell, along with the stock market. Even as late
as 1959, margin debt was only $3.4 billion.

Margin debt in 1990 was about $30 billion. It started taking off
rapidly in the 1990s, at the same time as the tech bubble. Today,
margin debt is $366 billion. It was $289 billion just one year ago.
The reason that it grew so rapidly in the last year is because the Fed
is "printing" $86 billion per month in new money liquidity, and a lot
of that money is being loaned to investors by companies like
Interactive Brokers, creating huge margin debt accounts.

John Kenneth Galbraith, in his 1954 book The Great Crash -
1929, defines margin as follows:

"Margins -- the cash which the speculator must supply
in addition to the securities to protect the loan and which he
must augment if the value of the collateral securities should fall
and so lower the protection they provide -- are effortlessly
calculated and watched. The interest rate moves quickly and
easily to keep the supply of funds adjusted to the demand. Wall
Street, however has never been able to express its pride in these
arrangements. They are admirable and even wonderful only in
relation to the purpose they serve. The purpose is to accommodate
the speculator and facilitate speculation. But the purposes
cannot be admitted. If Wall Street confessed this purpose, many
thousands of moral men and women would have no choice but to
condemn it for nurturing an evil thing and call for reform.
Margin trading must be defended not on the grounds that it
efficiently and ingeniously assists the speculator, but that it
encourages the extra trading which changes a thin and anemic
market into a thick and healthy one. At best this is a dull
by-product and a dubious one. Wall Street, in these matters, is
like a lovely and accomplished woman who must wear black cotton
stockings, heavy woolen underwear, and parade her knowledge as a
cook because, unhappily, her supreme accomplishment is as a
harlot."

This shows the problem that the Fed faces. The Fed has created a true
Ponzi scheme, where more and more money has to pour into the system to
keep stock prices up. If the Fed lets up on the $86 billion per
month, then customers of Interactive Brokers and similar firms who are
counting on new stock market highs are going to be stuck. Once stocks
start falling, and the margin calls start, then there's nothing to
prevent a major panic and financial crisis. And that's exactly what
Generational Dynamics predicts is going to happen.

China's local government debt is 'out of control'

Zhang Ke, a senior Chinese auditor, and head of leading Chinese
accounting firm ShineWing, is refusing to sign off on further bond
sales by local governments in China because local government debt is
"out of control," and could spark a bigger financial crisis than the
US housing market crash, according to Zhang

"We audited some local government bond issues and
found them very dangerous, so we pulled out. Most don't have
strong debt servicing abilities. Things could become very
serious."

It is rare for a figure as established in the Chinese financial
industry to make such stark comments. FT Blog

Germany's economic experts consider a wealth tax to fund bailouts

Germany's council of economic experts, known as the "Five
Wise Men," is considering a plan to raise bailout money by
large increases in real estate taxes on property. The Europeans
have been looking for ways to fund bailout programs, and in
Cyprus it was done by confiscating 60% of bank accounts above
100,000 euros. But many consider that unsatisfactory, because
rich people can easily transfer their money out of a country
when it appears that the country is headed for a bailout.
However, rich people cannot transfer real estate out of a
country, and so taxing real estate seems the best way to
make the rich pay.

The idea of a wealth tax has gained support after publication last
week of the European Central Bank (ECB) report that found that Germany
had the lowest median net household wealth in the eurozone, while
countries like Cyprus and Spain had much higher values. ( "11-Apr-13 World View -- Is Germany the poorest country in Europe?") The non-intuitive
result is attributed to the fact that Germany has much lower
home ownership than other countries, and home ownership is
the biggest contributor to household wealth. Telegraph (London)